1. If the government wants to increase the amount of savings in the economy, how should it alter government spending? What effect will this action have on the interest rate in the economy? (Use the appropriate graph to help demonstrate the effect.)

2. The government raises tax by $100 billion. If the marginal propensity to consume is 0.6, what happens to the following? Do they rise or fall? By what amounts?

(a) Public saving

(b) Private saving

(c) National saving

(d) Investment

3. he great recession affected both consumer confidence and the business confidence in the U.S. The classical economic theory states that the income is fixed in the long-run, what will be the effect of this decline in consumer and business confidence on savings and interest rate?

4. The Republican Party opposed Obama administrations stimulus program on the ground that the plan would increase government spending by a huge amount, and hence it will have a negative impact on the U.S. economy. Explain in words how does an increase in government spending may affect future growth. Is it possible for the increase in government spending to stimulate growth?